Photo by Dustan Woodhouse from Unsplash

Only a smidge of the world’s insured economic losses belong to Asia

Global insured losses could surpass $400b, yearly.

The global modelled insured average annual loss from natural catastrophes has reached a new high of $133b, according to a report by Verisk.

This figure is indicative of a trend where the insurance industry should anticipate total insured losses from natural catastrophes consistently exceeding $100b annually, and even losses surpassing $200b are plausible.

Global insured losses represent only around one-third of the total global economic losses, which are estimated to potentially exceed $400b annually. This significant disparity highlights the need for increased insurance coverage worldwide.

The protection gap varies by region, with North America having about 51% of economic losses insured, while in Asia, only about 12% of economic losses are covered. These figures reflect the varying levels of insurance penetration in different regions.

These numbers represent a significant increase over the past decade, as reported in the 2023 Global Modeled Catastrophe Losses Report by Verisk.

ALSO READ: Tokio Marine & Nichido Fire Insurance face natural catastrophe risks: Moody’s

This is primarily due to ongoing construction in high-hazard areas and rising replacement costs, largely attributed to inflation. While climate change plays a role, its impact is overshadowed by the year-over-year growth of exposure and increasing replacement values, which have a more immediate effect.

Additionally, the report highlights a shift in the nature of the hazards contributing to these losses. Traditionally, hurricanes and earthquakes were the primary perils, but now, losses from floods, severe thunderstorms, and wildfire events account for a more significant portion of annual losses. 

This shift is due to a combination of more frequent events and the higher value of properties at risk.

Notably, severe thunderstorms have become a major contributor to insured losses, responsible for over 70% of insured losses so far in 2023. This underscores their importance and dispels the notion that they are secondary perils. Globally, severe thunderstorms now contribute nearly 40% to the Global Average Annual Loss (AAL) insured.

To better prepare for large loss years and manage risk effectively, companies can utilize probabilistic catastrophe modelling. 

Verisk's models provide insights into the probability of different levels of loss, including the estimation that the global insured 1%, or 100-year loss, stands at $370b. This detail allows (re)insurers to navigate challenging years with confidence without jeopardizing their financial stability.


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